U.S. Stock Futures Drop as Italy Triggers Selloff

(Bloomberg) — The escalating political crisis in Italy roiled markets on Tuesday, sparking risk-off moves and a flight to safety worldwide. U.S. stock futures dropped alongside European equities and the euro, while Treasuries advanced with the dollar and yen.

Italian bonds triggered the selloff, plunging as the country began to prepare for a potential new election. The moves spilled over into other peripheral-nation debt, while the euro fell to the weakest level since July. The Stoxx Europe 600 Index headed for its biggest decline since March. Amid the tumult the benchmark U.S. bond yield briefly dipped below 2.8 percent, while those of 10-year gilts and bunds also dropped as investors sought safer assets.

Earlier, the MSCI Asia Pacific Index slipped as shares of iPhone screen makers slumped on a report that Apple Inc. is shifting to next-generation technology. The Topix index posted its longest losing streak since September 2016 as Japan’s currency jumped.

Political turmoil in Italy is rekindling memories of the euro zone’s woes of the past decade, and caution is spilling over into the wider market. Pro- and anti-European forces are at loggerheads in Rome, with another election expected as early as September after parties failed to form a government in the wake of a poll in March.

“These developments are concerning,” Alessio de Longis, a New York-based portfolio manager at Oppenheimer Funds Inc., told Bloomberg Television in regard to Italy’s political landscape. “The market has taken a completely different tone, it no longer believes what the parties are saying. The markets will be really unable to move forward into a different narrative” until the Italian outlook is clearer, he said.

Elsewhere, the Turkish lira weakened after surging Monday when the central bank took steps to simplify its monetary policy. Many Southeast Asian markets were closed for holidays Tuesday, including Singapore, Indonesia, Malaysia and Thailand.

Terminal users can read more in Bloomberg’s Markets Live blog.

These are some key events to watch this week:

EU trade chief Cecilia Malmstrom and U.S. Commerce Secretary Wilbur Ross are scheduled to meet Wednesday in an informal World Trade Organization ministerial in Paris.

The U.S. employment report for May is due Friday. It’s the last before the June Fed meeting.

Automakers report May U.S. sales the same day.

Also Friday: China’s stock market joins MSCI Inc.’s global indexes.

On Saturday U.S. Secretary of Commerce Wilbur Ross will travel to Beijing for more talks with Vice Premier Liu He on topics including ZTE Corp. and trade.

These are the main moves in markets:

Stocks

The Stoxx Europe 600 Index sank 1.2 percent as of 8:42 a.m. New York time, the largest tumble in almost 10 weeks.

Futures on the S&P 500 Index declined 0.6 percent to the lowest in almost three weeks.

The U.K.’s FTSE 100 Index sank 1.2 percent, the largest tumble in almost 10 weeks.

Germany’s DAX Index decreased 1.1 percent to the lowest in almost four weeks.

The MSCI Emerging Market Index declined 1 percent to the lowest in more than five months.

The MSCI Asia Pacific Index declined 0.5 percent to the lowest in more than three weeks.

Currencies

The Bloomberg Dollar Spot Index rose 0.2 percent to the highest in more than five months.

The euro sank 0.5 percent to $1.157, the weakest in more than 10 months.

The British pound declined 0.2 percent to $1.3285, the weakest in about six months.

The Japanese yen climbed 0.4 percent to 108.95 per dollar, the strongest in five weeks.

The Turkish lira dipped 0.1 percent to 4.5899 per dollar.

Bonds

The yield on 10-year Treasuries declined five basis points to 2.88 percent, reaching the lowest in almost six weeks on its sixth straight decline.

Germany’s 10-year yield dipped two basis points to 0.33 percent, hitting the lowest in more than five months with its fifth straight decline.

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